and fittings are manufactured in accordance with the specifications in the
contract. Industrial Inspection certified all the pipes and fittings to be in
[G.R. No. 124050. June 19, 1997]
MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT
SUPPLIES DEPARTMENT, petitioners, vs. COURT OF APPEALS, SOUTH SEA
SURETY AND INSURANCE CO., INC. and the CHARTER INSURANCE
CORPORATION, respondents.
DECISION
PUNO, J.:
This is a petition for review on certiorari to annul and set aside the
Decision of respondent Court of Appeals dated December 14, 1995[1] and its
Resolution dated February 22, 1996[2] in CA-G.R. CV No. 45805 entitled
Mayer Steel Pipe Corporation and Hongkong Government Supplies
Department v. South Sea Surety Insurance Co., Inc. and The Charter
Insurance Corporation.[3]
In 1983, petitioner Hongkong Government Supplies Department
(Hongkong) contracted petitioner Mayer Steel Pipe Corporation (Mayer) to
manufacture and supply various steel pipes and fittings. From August to
October, 1983, Mayer shipped the pipes and fittings to Hongkong as
evidenced by Invoice Nos. MSPC-1014, MSPC-1015, MSPC-1025, MSPC-
1020, MSPC-1017 and MSPC-1022.[4]
Prior to the shipping, petitioner Mayer insured the pipes and fittings
against all risks with private respondents South Sea Surety and Insurance
Co., Inc. (South Sea) and Charter Insurance Corp. (Charter). The pipes and
fittings covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a total
amount of US$212,772.09 were insured with respondent South Sea, while
those covered by Invoice Nos. 1020, 1017 and 1022 with a total amount of
US$149,470.00 were insured with respondent Charter.
Petitioners Mayer and Hongkong jointly appointed Industrial Inspection
(International) Inc. as third-party inspector to examine whether the pipes
good order condition before they were loaded in the vessel. Nonetheless,
when the goods reached Hongkong, it was discovered that a substantial
portion thereof was damaged.
Petitioners filed a claim against private respondents for indemnity
under the insurance contract. Respondent Charter paid petitioner Hongkong
the amount of HK$64,904.75. Petitioners demanded payment of the
balance of HK$299,345.30 representing the cost of repair of the damaged
pipes. Private respondents refused to pay because the insurance surveyor's
report allegedly showed that the damage is a factory defect.
On April 17, 1986, petitioners filed an action against private
respondents to recover the sum of HK$299,345.30. For their defense,
private respondents averred that they have no obligation to pay the amount
claimed by petitioners because the damage to the goods is due to factory
defects which are not covered by the insurance policies.
The trial court ruled in favor of petitioners. It found that the damage to
the goods is not due to manufacturing defects. It also noted that the
insurance contracts executed by petitioner Mayer and private respondents
are "all risks" policies which insure against all causes of conceivable loss or
damage. The only exceptions are those excluded in the policy, or those
sustained due to fraud or intentional misconduct on the part of the
insured.The dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered ordering the
defendants jointly and severally, to pay the plaintiffs the following:
1. the sum equivalent in Philippine currency of
HK$299,345.30 with legal rate of interest as of the filing
of the complaint;
2. P100,000.00 as and for attorney's fees; and
3. costs of suit.
SO ORDERED.[5]
Private respondents elevated the case to respondent Court of Appeals.
Respondent court affirmed the finding of the trial court that the
damage is not due to factory defect and that it was covered by the "all risks"
insurance policies issued by private respondents to petitioner
Mayer.However, it set aside the decision of the trial court and dismissed the
complaint on the ground of prescription. It held that the action is barred
under Section 3(6) of the Carriage of Goods by Sea Act since it was filed only
on April 17, 1986, more than two years from the time the goods were
unloaded from the vessel. Section 3(6) of the Carriage of Goods by Sea Act
provides that "the carrier and the ship shall be discharged from all liability in
respect of loss or damage unless suit is brought within one year after
delivery of the goods or the date when the goods should have been
delivered." Respondent court ruled that this provision applies not only to
the carrier but also to the insurer, citing Filipino Merchants Insurance Co.,
Inc. vs. Alejandro.[6]
Hence this petition with the following assignments of error:
1. The respondent Court of Appeals erred in holding that
petitioners' cause of action had already prescribed on the
mistaken application of the Carriage of Goods by Sea Act and
the doctrine of Filipino Merchants Co., Inc. v. Alejandro (145
SCRA 42); and
2. The respondent Court of Appeals committed an error in
dismissing the complaint.[7]
The petition is impressed with merit. Respondent court erred in
applying Section 3(6) of the Carriage of Goods by Sea Act.
Section 3(6) of the Carriage of Goods by Sea Act states that the carrier
and the ship shall be discharged from all liability for loss or damage to the
goods if no suit is filed within one year after delivery of the goods or the
date when they should have been delivered. Under this provision, only the
carrier's liability is extinguished if no suit is brought within one year. But the
liability of the insurer is not extinguished because the insurer's liability is
based not on the contract of carriage but on the contract of insurance. A
close reading of the law reveals that the Carriage of Goods by Sea Act
governs the relationship between the carrier on the one hand and the
shipper, the consignee and/or the insurer on the other hand. It defines the
obligations of the carrier under the contract of carriage. It does not,
however, affect the relationship between the shipper and the insurer. The
latter case is governed by the Insurance Code.
Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro[8] and
the other cases[9] cited therein does not support respondent court's view
that the insurer's liability prescribes after one year if no action for indemnity
is filed against the carrier or the insurer. In that case, the shipper filed a
complaint against the insurer for recovery of a sum of money as indemnity
for the loss and damage sustained by the insured goods. The insurer, in
turn, filed a third-party complaint against the carrier for reimbursement of
the amount it paid to the shipper. The insurer filed the third-party
complaint on January 9, 1978, more than one year after delivery of the
goods on December 17, 1977. The court held that the Insurer was already
barred from filing a claim against the carrier because under the Carriage of
Goods by Sea Act, the suit against the carrier must be filed within one year
after delivery of the goods or the date when the goods should have been
delivered. The court said that "the coverage of the Act includes the insurer
of the goods."[10]
The Filipino Merchants case is different from the case at bar. In Filipino
Merchants, it was the insurer which filed a claim against the carrier for
reimbursement of the amount it paid to the shipper. In the case at bar, it
was the shipper which filed a claim against the insurer. The basis of the
shipper's claim is the "all risks" insurance policies issued by private
respondents to petitioner Mayer.
The ruling in Filipino Merchants should apply only to suits against the
carrier filed either by the shipper, the consignee or the insurer. When the
court said in Filipino Merchants that Section 3(6) of the Carriage of Goods
by Sea Act applies to the insurer, it meant that the insurer, like the shipper,
may no longer file a claim against the carrier beyond the one-year period
provided in the law. But it does not mean that the shipper may no longer
file a claim against the insurer because the basis of the insurer's liability is
the insurance contract. An insurance contract is a contract whereby one
party, for a consideration known as the premium, agrees to indemnify
another for loss or damage which he may suffer from a specified peril.[11] An
"all risks" insurance policy covers all kinds of loss other than those due to
willful and fraudulent act of the insured.[12] Thus, when private respondents
issued the "all risks" policies to petitioner Mayer, they bound themselves to
indemnify the latter in case of loss or damage to the goods insured. Such
obligation prescribes in ten years, in accordance with Article 1144 of the
New Civil Code.[13]
 IN VIEW WHEREOF, the petition is GRANTED. The Decision of
respondent Court of Appeals dated December 14, 1995 and its Resolution
dated February 22, 1996 are hereby SET ASIDE and the Decision of the
Regional Trial Court is hereby REINSTATED. No costs.
SO ORDERED.
sick, elderly, disabled, women, and children. The State shall endeavor to
provide free medical care to paupers.1
For resolution are a motion for reconsideration and supplemental motion
for reconsideration dated July 10, 2008 and July 14, 2008, respectively, filed
by petitioner Philippine Health Care Providers, Inc.2

We recall the facts of this case, as follows:

Petitioner is a domestic corporation whose primary purpose is "[t]o

Republic of the Philippines establish, maintain, conduct and operate a prepaid group practice health
SUPREME COURT care delivery system or a health maintenance organization to take care of
Manila the sick and disabled persons enrolled in the health care plan and to provide
for the administrative, legal, and financial responsibilities of the
SPECIAL FIRST DIVISION organization." Individuals enrolled in its health care programs pay an annual
membership fee and are entitled to various preventive, diagnostic and
G.R. No. 167330 September 18, 2009 curative medical services provided by its duly licensed physicians, specialists
and other professional technical staff participating in the group practice
PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner, health delivery system at a hospital or clinic owned, operated or accredited
vs. by it.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
xxx xxx xxx
RESOLUTION
On January 27, 2000, respondent Commissioner of Internal Revenue [CIR]
CORONA, J.: sent petitioner a formal demand letter and the corresponding assessment
notices demanding the payment of deficiency taxes, including surcharges
ARTICLE II and interest, for the taxable years 1996 and 1997 in the total amount
Declaration of Principles and State Policies of P224,702,641.18. xxxx

Section 15. The State shall protect and promote the right to health of the The deficiency [documentary stamp tax (DST)] assessment was imposed on
people and instill health consciousness among them. petitioner’s health care agreement with the members of its health care
program pursuant to Section 185 of the 1997 Tax Code xxxx
ARTICLE XIII
Social Justice and Human Rights xxx xxx xxx

Section 11. The State shall adopt an integrated and comprehensive Petitioner protested the assessment in a letter dated February 23, 2000. As
approach to health development which shall endeavor to make essential respondent did not act on the protest, petitioner filed a petition for review
goods, health and other social services available to all the people at in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency
affordable cost. There shall be priority for the needs of the underprivileged VAT and DST assessments.
On April 5, 2002, the CTA rendered a decision, the dispositive portion of
which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is
PARTIALLY GRANTED. Petitioner is hereby ORDERED to PAY the deficiency
VAT amounting to P22,054,831.75 inclusive of 25% surcharge plus 20%
interest from January 20, 1997 until fully paid for the 1996 VAT deficiency
and P31,094,163.87 inclusive of 25% surcharge plus 20% interest from
January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly,
VAT Ruling No. [231]-88 is declared void and without force and effect. The
1996 and 1997 deficiency DST assessment against petitioner is hereby
CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from
collecting the said DST deficiency tax.
SO ORDERED.
Respondent appealed the CTA decision to the [Court of Appeals (CA)]
insofar as it cancelled the DST assessment. He claimed that petitioner’s
health care agreement was a contract of insurance subject to DST under
Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision. It held that petitioner’s
health care agreement was in the nature of a non-life insurance contract
subject to DST.
WHEREFORE, the petition for review is GRANTED. The Decision of the Court
of Tax Appeals, insofar as it cancelled and set aside the 1996 and 1997
deficiency documentary stamp tax assessment and ordered petitioner to
desist from collecting the same is REVERSED and SET ASIDE.
Respondent is ordered to pay the amounts of P55,746,352.19
and P68,450,258.73 as deficiency Documentary Stamp Tax for 1996 and
1997, respectively, plus 25% surcharge for late payment and 20% interest
per annum from January 27, 2000, pursuant to Sections 248 and 249 of the
Tax Code, until the same shall have been fully paid.
SO ORDERED.
Petitioner moved for reconsideration but the CA denied it. Hence, petitioner
filed this case.
xxx xxx xxx
In a decision dated June 12, 2008, the Court denied the petition and
affirmed the CA’s decision. We held that petitioner’s health care agreement
during the pertinent period was in the nature of non-life insurance which is
a contract of indemnity, citing Blue Cross Healthcare, Inc. v.
Olivares3 and Philamcare Health Systems, Inc. v. CA.4We also ruled that
petitioner’s contention that it is a health maintenance organization (HMO)
and not an insurance company is irrelevant because contracts between
companies like petitioner and the beneficiaries under their plans are treated
as insurance contracts. Moreover, DST is not a tax on the business
transacted but an excise on the privilege, opportunity or facility offered at
exchanges for the transaction of the business.
Unable to accept our verdict, petitioner filed the present motion for
reconsideration and supplemental motion for reconsideration, asserting the
following arguments:
(a) The DST under Section 185 of the National Internal Revenue of
1997 is imposed only on a company engaged in the business of
fidelity bonds and other insurance policies. Petitioner, as an HMO, is
a service provider, not an insurance company.
(b) The Court, in dismissing the appeal in CIR v. Philippine National
Bank, affirmed in effect the CA’s disposition that health care
services are not in the nature of an insurance business.
(c) Section 185 should be strictly construed.
(d) Legislative intent to exclude health care agreements from items
subject to DST is clear, especially in the light of the amendments
made in the DST law in 2002.
(e) Assuming arguendo that petitioner’s agreements are contracts
of indemnity, they are not those contemplated under Section 185.
 (f) Assuming arguendo that petitioner’s agreements are akin to
health insurance, health insurance is not covered by Section 185.
(g) The agreements do not fall under the phrase "other branch of
insurance" mentioned in Section 185.
(h) The June 12, 2008 decision should only apply prospectively.
(i) Petitioner availed of the tax amnesty benefits under RA5 9480 for
the taxable year 2005 and all prior years. Therefore, the questioned
assessments on the DST are now rendered moot and academic.6
Oral arguments were held in Baguio City on April 22, 2009. The parties
submitted their memoranda on June 8, 2009.
In its motion for reconsideration, petitioner reveals for the first time that it
availed of a tax amnesty under RA 94807 (also known as the "Tax Amnesty
Act of 2007") by fully paying the amount of P5,127,149.08 representing 5%
of its net worth as of the year ending December 31, 2005.8
We find merit in petitioner’s motion for reconsideration.
Petitioner was formally registered and incorporated with the Securities and
Exchange Commission on June 30, 1987.9 It is engaged in the dispensation
of the following medical services to individuals who enter into health care
agreements with it:
Preventive medical services such as periodic monitoring of health problems,
family planning counseling, consultation and advices on diet, exercise and
other healthy habits, and immunization;
Diagnostic medical services such as routine physical examinations, x-rays,
urinalysis, fecalysis, complete blood count, and the like and
Curative medical services which pertain to the performing of other remedial
and therapeutic processes in the event of an injury or sickness on the part
of the enrolled member.10
Individuals enrolled in its health care program pay an annual membership
fee. Membership is on a year-to-year basis. The medical services are
dispensed to enrolled members in a hospital or clinic owned, operated or
accredited by petitioner, through physicians, medical and dental
practitioners under contract with it. It negotiates with such health care
practitioners regarding payment schemes, financing and other procedures
for the delivery of health services. Except in cases of emergency, the
professional services are to be provided only by petitioner's physicians, i.e.
those directly employed by it11 or whose services are contracted by
it.12 Petitioner also provides hospital services such as room and board
accommodation, laboratory services, operating rooms, x-ray facilities and
general nursing care.13 If and when a member avails of the benefits under
the agreement, petitioner pays the participating physicians and other health
care providers for the services rendered, at pre-agreed rates.14
To avail of petitioner’s health care programs, the individual members are
required to sign and execute a standard health care agreement embodying
the terms and conditions for the provision of the health care services. The
same agreement contains the various health care services that can be
engaged by the enrolled member, i.e., preventive, diagnostic and curative
medical services. Except for the curative aspect of the medical service
offered, the enrolled member may actually make use of the health care
services being offered by petitioner at any time.
Health Maintenance Organizations Are Not Engaged In The Insurance
Business
We said in our June 12, 2008 decision that it is irrelevant that petitioner is
an HMO and not an insurer because its agreements are treated as insurance
contracts and the DST is not a tax on the business but an excise on the
privilege, opportunity or facility used in the transaction of the business.15
Petitioner, however, submits that it is of critical importance to characterize
the business it is engaged in, that is, to determine whether it is an HMO or
an insurance company, as this distinction is indispensable in turn to the
issue of whether or not it is liable for DST on its health care agreements.16
A second hard look at the relevant law and jurisprudence convinces the
Court that the arguments of petitioner are meritorious.
Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997)
provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. – On
all policies of insurance or bonds or obligations of the nature of indemnity
for loss, damage, or liability made or renewed by any person, association
or company or corporation transacting the business of accident, fidelity,
employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic
sprinkler, or other branch of insurance (except life, marine, inland, and fire
insurance), and all bonds, undertakings, or recognizances, conditioned for
the performance of the duties of any office or position, for the doing or not
doing of anything therein specified, and on all obligations guaranteeing the
validity or legality of any bond or other obligations issued by any province,
city, municipality, or other public body or organization, and on all
obligations guaranteeing the title to any real estate, or guaranteeing any
mercantile credits, which may be made or renewed by any such person,
company or corporation, there shall be collected a documentary stamp tax
of fifty centavos (P0.50) on each four pesos (P4.00), or fractional part
thereof, of the premium charged. (Emphasis supplied)
It is a cardinal rule in statutory construction that no word, clause, sentence,
provision or part of a statute shall be considered surplusage or superfluous,
meaningless, void and insignificant. To this end, a construction which
renders every word operative is preferred over that which makes some
words idle and nugatory.17 This principle is expressed in the maxim Ut magis
valeat quam pereat, that is, we choose the interpretation which gives effect
to the whole of the statute – its every word.18
From the language of Section 185, it is evident that two requisites must
concur before the DST can apply, namely: (1) the document must be
a policy of insurance or an obligation in the nature of
indemnity and (2) the maker should be transacting the business
of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar,
elevator, automatic sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance).
Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health
Insurance Act of 1995"), an HMO is "an entity that provides, offers or
arranges for coverage of designated health services needed by plan
members for a fixed prepaid premium."19 The payments do not vary with
the extent, frequency or type of services provided.
The question is: was petitioner, as an HMO, engaged in the business of
insurance during the pertinent taxable years? We rule that it was not.
Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code)
enumerates what constitutes "doing an insurance business" or "transacting
an insurance business:"
a) making or proposing to make, as insurer, any insurance contract;
b) making or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to any other
legitimate business or activity of the surety;
c) doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance
business within the meaning of this Code;
d) doing or proposing to do any business in substance equivalent to
any of the foregoing in a manner designed to evade the provisions
of this Code.
In the application of the provisions of this Code, the fact that no profit is
derived from the making of insurance contracts, agreements or transactions
or that no separate or direct consideration is received therefore, shall not
be deemed conclusive to show that the making thereof does not constitute
the doing or transacting of an insurance business.
Various courts in the United States, whose jurisprudence has a persuasive
effect on our decisions,21 have determined that HMOs are not in the
insurance business. One test that they have applied is whether the
assumption of risk and indemnification of loss (which are elements of an
insurance business) are the principal object and purpose of the organization
or whether they are merely incidental to its business. If these are the
principal objectives, the business is that of insurance. But if they are merely
incidental and service is the principal purpose, then the business is not
insurance.
Applying the "principal object and purpose test,"22 there is significant
American case law supporting the argument that a corporation (such as an
HMO, whether or not organized for profit), whose main object is to provide
the members of a group with health services, is not engaged in the
insurance business.
The rule was enunciated in Jordan v. Group Health Association23 wherein the
Court of Appeals of the District of Columbia Circuit held that Group Health
Association should not be considered as engaged in insurance activities
since it was created primarily for the distribution of health care services
rather than the assumption of insurance risk.
xxx Although Group Health’s activities may be considered in one aspect as
creating security against loss from illness or accident more truly they
constitute the quantity purchase of well-rounded, continuous medical
service by its members. xxx The functions of such an organization are not
identical with those of insurance or indemnity companies. The latter are
concerned primarily, if not exclusively, with risk and the consequences of its
descent, not with service, or its extension in kind, quantity or distribution;
with the unusual occurrence, not the daily routine of living. Hazard is
predominant. On the other hand, the cooperative is concerned principally
with getting service rendered to its members and doing so at lower prices
made possible by quantity purchasing and economies in operation. Its
primary purpose is to reduce the cost rather than the risk of medical care;
to broaden the service to the individual in kind and quantity; to enlarge
the number receiving it; to regularize it as an everyday incident of living,
like purchasing food and clothing or oil and gas, rather than merely
protecting against the financial loss caused by extraordinary and unusual
occurrences, such as death, disaster at sea, fire and tornado. It is, in this
instance, to take care of colds, ordinary aches and pains, minor ills and all
the temporary bodily discomforts as well as the more serious and unusual
illness. To summarize, the distinctive features of the cooperative are the
rendering of service, its extension, the bringing of physician and patient
together, the preventive features, the regularization of service as well as
payment, the substantial reduction in cost by quantity purchasing in short,
getting the medical job done and paid for; not, except incidentally to these
features, the indemnification for cost after the services is rendered. Except
the last, these are not distinctive or generally characteristic of the
insurance arrangement. There is, therefore, a substantial difference
between contracting in this way for the rendering of service, even on the
contingency that it be needed, and contracting merely to stand its cost
when or after it is rendered.
That an incidental element of risk distribution or assumption may be
present should not outweigh all other factors. If attention is focused only on
that feature, the line between insurance or indemnity and other types of
legal arrangement and economic function becomes faint, if not extinct. This
is especially true when the contract is for the sale of goods or services on
contingency. But obviously it was not the purpose of the insurance statutes
to regulate all arrangements for assumption or distribution of risk. That
view would cause them to engulf practically all contracts, particularly
conditional sales and contingent service agreements. The fallacy is in
looking only at the risk element, to the exclusion of all others present or
their subordination to it. The question turns, not on whether risk is
involved or assumed, but on whether that or something else to which it is
related in the particular plan is its principal object purpose.24 (Emphasis
supplied)
In California Physicians’ Service v. Garrison,25 the California court felt that,
after scrutinizing the plan of operation as a whole of the corporation, it was
service rather than indemnity which stood as its principal purpose.
There is another and more compelling reason for holding that the service is
not engaged in the insurance business. Absence or presence of assumption
of risk or peril is not the sole test to be applied in determining its status.
The question, more broadly, is whether, looking at the plan of operation
as a whole, ‘service’ rather than ‘indemnity’ is its principal object and
purpose. Certainly the objects and purposes of the corporation organized
and maintained by the California physicians have a wide scope in the field of
social service. Probably there is no more impelling need than that of
adequate medical care on a voluntary, low-cost basis for persons of small
income. The medical profession unitedly is endeavoring to meet that
need. Unquestionably this is ‘service’ of a high order and not
‘indemnity.’26 (Emphasis supplied)
American courts have pointed out that the main difference between an
HMO and an insurance company is that HMOs undertake to provide or
arrange for the provision of medical services through participating
physicians while insurance companies simply undertake to indemnify the
insured for medical expenses incurred up to a pre-agreed
limit. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue
Shield of New Jersey27 is clear on this point:
The basic distinction between medical service corporations and ordinary
health and accident insurers is that the former undertake to provide prepaid
medical services through participating physicians, thus relieving subscribers
of any further financial burden, while the latter only undertake to indemnify
an insured for medical expenses up to, but not beyond, the schedule of
rates contained in the policy.
xxx xxx xxx
The primary purpose of a medical service corporation, however, is an
undertaking to provide physicians who will render services to subscribers on
a prepaid basis. Hence, if there are no physicians participating in the
medical service corporation’s plan, not only will the subscribers be
deprived of the protection which they might reasonably have expected
would be provided, but the corporation will, in effect, be doing business
solely as a health and accident indemnity insurer without having qualified
as such and rendering itself subject to the more stringent financial
requirements of the General Insurance Laws….
A participating provider of health care services is one who agrees in writing
to render health care services to or for persons covered by a contract issued
by health service corporation in return for which the health service
corporation agrees to make payment directly to the participating
provider.28 (Emphasis supplied)
Consequently, the mere presence of risk would be insufficient to override
the primary purpose of the business to provide medical services as needed,
with payment made directly to the provider of these services.29 In short,
even if petitioner assumes the risk of paying the cost of these services even
if significantly more than what the member has prepaid, it nevertheless
cannot be considered as being engaged in the insurance business.
By the same token, any indemnification resulting from the payment for
services rendered in case of emergency by non-participating health
providers would still be incidental to petitioner’s purpose of providing and
arranging for health care services and does not transform it into an insurer.
To fulfill its obligations to its members under the agreements, petitioner is
required to set up a system and the facilities for the delivery of such medical
services. This indubitably shows that indemnification is not its sole object.
In fact, a substantial portion of petitioner’s services covers preventive and
diagnostic medical services intended to keep members from developing
medical conditions or diseases.30 As an HMO, it is its obligation to maintain
the good health of its members. Accordingly, its health care programs are
designed to prevent or to minimize the possibility of any assumption of
risk on its part. Thus, its undertaking under its agreements is not to
indemnify its members against any loss or damage arising from a medical
condition but, on the contrary, to provide the health and medical services
needed to prevent such loss or damage.31
Overall, petitioner appears to provide insurance-type benefits to its
members (with respect to its curative medical services), but these are
incidental to the principal activity of providing them medical care. The
"insurance-like" aspect of petitioner’s business is miniscule compared to its
noninsurance activities. Therefore, since it substantially provides health care
services rather than insurance services, it cannot be considered as being in
the insurance business.
It is important to emphasize that, in adopting the "principal purpose test"
used in the above-quoted U.S. cases, we are not saying that petitioner’s
operations are identical in every respect to those of the HMOs or health
providers which were parties to those cases. What we are stating is that, for
the purpose of determining what "doing an insurance business" means, we
have to scrutinize the operations of the business as a whole and not its
mere components. This is of course only prudent and appropriate, taking
into account the burdensome and strict laws, rules and regulations
applicable to insurers and other entities engaged in the insurance business.
Moreover, we are also not unmindful that there are other American
authorities who have found particular HMOs to be actually engaged in
insurance activities.32
Lastly, it is significant that petitioner, as an HMO, is not part of the
insurance industry. This is evident from the fact that it is not supervised by
the Insurance Commission but by the Department of Health.33 In fact, in a
letter dated September 3, 2000, the Insurance Commissioner confirmed
that petitioner is not engaged in the insurance business. This determination
of the commissioner must be accorded great weight. It is well-settled that
the interpretation of an administrative agency which is tasked to implement
a statute is accorded great respect and ordinarily controls the interpretation
of laws by the courts. The reason behind this rule was explained in Nestle
Philippines, Inc. v. Court of Appeals:34
The rationale for this rule relates not only to the emergence of the
multifarious needs of a modern or modernizing society and the
establishment of diverse administrative agencies for addressing and
satisfying those needs; it also relates to the accumulation of experience and
growth of specialized capabilities by the administrative agency charged with
implementing a particular statute. In Asturias Sugar Central, Inc. vs.
Commissioner of Customs,35the Court stressed that executive officials are
presumed to have familiarized themselves with all the considerations
pertinent to the meaning and purpose of the law, and to have formed an
independent, conscientious and competent expert opinion thereon. The
courts give much weight to the government agency officials charged with
the implementation of the law, their competence, expertness, experience
and informed judgment, and the fact that they frequently are the drafters of
the law they interpret.36
A Health Care Agreement Is Not An Insurance Contract Contemplated
Under Section 185 Of The NIRC of 1997
Section 185 states that DST is imposed on "all policies of insurance… or
obligations of the nature of indemnity for loss, damage, or liability…." In our
decision dated June 12, 2008, we ruled that petitioner’s health care
agreements are contracts of indemnity and are therefore insurance
contracts:
It is … incorrect to say that the health care agreement is not based on loss or
damage because, under the said agreement, petitioner assumes the liability
and indemnifies its member for hospital, medical and related expenses
(such as professional fees of physicians). The term "loss or damage" is broad
enough to cover the monetary expense or liability a member will incur in
case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and
professional services to the member in case of sickness, injury or emergency
or his availment of so-called "out-patient services" (including physical
examination, x-ray and laboratory tests, medical consultations, vaccine
administration and family planning counseling) is the contingent event
which gives rise to liability on the part of the member. In case of exposure
of the member to liability, he would be entitled to indemnification by
petitioner.
Furthermore, the fact that petitioner must relieve its member from liability
by paying for expenses arising from the stipulated contingencies belies its
claim that its services are prepaid. The expenses to be incurred by each
member cannot be predicted beforehand, if they can be predicted at all.
Petitioner assumes the risk of paying for the costs of the services even if
they are significantly and substantially more than what the member has
"prepaid." Petitioner does not bear the costs alone but distributes or
spreads them out among a large group of persons bearing a similar risk, that
is, among all the other members of the health care program. This is
insurance.37
We reconsider. We shall quote once again the pertinent portion of Section
185:
Section 185. Stamp tax on fidelity bonds and other insurance policies. – On
all policies of insurance or bonds or obligations of the nature of indemnity
for loss, damage, or liability made or renewed by any person, association or
company or corporation transacting the business of accident, fidelity,
employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic
sprinkler, or other branch of insurance (except life, marine, inland, and fire
insurance), xxxx (Emphasis supplied)
In construing this provision, we should be guided by the principle that tax
statutes are strictly construed against the taxing authority.38 This is because
taxation is a destructive power which interferes with the personal and
property rights of the people and takes from them a portion of their
property for the support of the government.39Hence, tax laws may not be
extended by implication beyond the clear import of their language, nor their
operation enlarged so as to embrace matters not specifically provided.40
We are aware that, in Blue Cross and Philamcare, the Court pronounced
that a health care agreement is in the nature of non-life insurance, which is
primarily a contract of indemnity. However, those cases did not involve the
interpretation of a tax provision. Instead, they dealt with the liability of a
health service provider to a member under the terms of their health care
agreement. Such contracts, as contracts of adhesion, are liberally
interpreted in favor of the member and strictly against the HMO. For this
reason, we reconsider our ruling that Blue Cross and Philamcare are
applicable here.
Section 2 (1) of the Insurance Code defines a contract of insurance as an
agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or
contingent event. An insurance contract exists where the following
elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the
designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute
actual losses among a large group of persons bearing a similar risk
and
5. In consideration of the insurer’s promise, the insured pays a
premium.41
Do the agreements between petitioner and its members possess all these
elements? They do not.
First. In our jurisdiction, a commentator of our insurance laws has pointed
out that, even if a contract contains all the elements of an insurance
contract, if its primary purpose is the rendering of service, it is not a
contract of insurance:
It does not necessarily follow however, that a contract containing all the
four elements mentioned above would be an insurance contract. The
primary purpose of the parties in making the contract may negate the
existence of an insurance contract. For example, a law firm which enters
into contracts with clients whereby in consideration of periodical payments,
it promises to represent such clients in all suits for or against them, is not
engaged in the insurance business. Its contracts are simply for the purpose
of rendering personal services. On the other hand, a contract by which a
corporation, in consideration of a stipulated amount, agrees at its own
expense to defend a physician against all suits for damages for malpractice
is one of insurance, and the corporation will be deemed as engaged in the
business of insurance. Unlike the lawyer’s retainer contract, the essential
purpose of such a contract is not to render personal services, but to
indemnify against loss and damage resulting from the defense of actions for
malpractice.42 (Emphasis supplied)
Second. Not all the necessary elements of a contract of insurance are
present in petitioner’s agreements. To begin with, there is no loss, damage
or liability on the part of the member that should be indemnified by
petitioner as an HMO. Under the agreement, the member pays petitioner a
predetermined consideration in exchange for the hospital, medical and
professional services rendered by the petitioner’s physician or affiliated
physician to him. In case of availment by a member of the benefits under
the agreement, petitioner does not reimburse or indemnify the member as
the latter does not pay any third party. Instead, it is the petitioner who pays
the participating physicians and other health care providers for the services
rendered at pre-agreed rates. The member does not make any such
payment.
In other words, there is nothing in petitioner's agreements that gives rise to
a monetary liability on the part of the member to any third party-provider
of medical services which might in turn necessitate indemnification from
petitioner. The terms "indemnify" or "indemnity" presuppose that a liability
or claim has already been incurred. There is no indemnity precisely because
the member merely avails of medical services to be paid or already paid in
advance at a pre-agreed price under the agreements.
Third. According to the agreement, a member can take advantage of the
bulk of the benefits anytime, e.g. laboratory services, x-ray, routine annual
physical examination and consultations, vaccine administration as well as
family planning counseling, even in the absence of any peril, loss or damage
on his or her part.
Fourth. In case of emergency, petitioner is obliged to reimburse the
member who receives care from a non-participating physician or hospital.
However, this is only a very minor part of the list of services available. The
assumption of the expense by petitioner is not confined to the happening of
a contingency but includes incidents even in the absence of illness or injury.
In Michigan Podiatric Medical Association v. National Foot Care Program,
Inc.,43 although the health care contracts called for the defendant to
partially reimburse a subscriber for treatment received from a non-
designated doctor, this did not make defendant an insurer. Citing Jordan,
the Court determined that "the primary activity of the defendant (was) the
provision of podiatric services to subscribers in consideration of prepayment
for such services."44 Since indemnity of the insured was not the focal point
of the agreement but the extension of medical services to the member at an
affordable cost, it did not partake of the nature of a contract of insurance.
Fifth. Although risk is a primary element of an insurance contract, it is not
necessarily true that risk alone is sufficient to establish it. Almost anyone
who undertakes a contractual obligation always bears a certain degree of
financial risk. Consequently, there is a need to distinguish prepaid service
contracts (like those of petitioner) from the usual insurance contracts.
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to
provide health services: the risk that it might fail to earn a reasonable return
on its investment. But it is not the risk of the type peculiar only to insurance
companies. Insurance risk, also known as actuarial risk, is the risk that the
cost of insurance claims might be higher than the premiums paid. The
amount of premium is calculated on the basis of assumptions made relative
to the insured.45
However, assuming that petitioner’s commitment to provide medical
services to its members can be construed as an acceptance of the risk that it
will shell out more than the prepaid fees, it still will not qualify as an
insurance contract because petitioner’s objective is to provide medical
services at reduced cost, not to distribute risk like an insurer.
In sum, an examination of petitioner’s agreements with its members leads
us to conclude that it is not an insurance contract within the context of our
Insurance Code.
There Was No Legislative Intent To Impose DST On Health Care
Agreements Of HMOs
Furthermore, militating in convincing fashion against the imposition of DST
on petitioner’s health care agreements under Section 185 of the NIRC of
1997 is the provision’s legislative history. The text of Section 185 came into
U.S. law as early as 1904 when HMOs and health care agreements were not
even in existence in this jurisdiction. It was imposed under Section 116,
Article XI of Act No. 1189 (otherwise known as the "Internal Revenue Law of
1904")46 enacted on July 2, 1904 and became effective on August 1, 1904.
Except for the rate of tax, Section 185 of the NIRC of 1997 is a verbatim
reproduction of the pertinent portion of Section 116, to wit:
ARTICLE XI
Stamp Taxes on Specified Objects
Section 116. There shall be levied, collected, and paid for and in respect to
the several bonds, debentures, or certificates of stock and indebtedness,
and other documents, instruments, matters, and things mentioned and
described in this section, or for or in respect to the vellum, parchment, or
paper upon which such instrument, matters, or things or any of them shall
be written or printed by any person or persons who shall make, sign, or
issue the same, on and after January first, nineteen hundred and five, the
several taxes following:
xxx xxx xxx
Third xxx (c) on all policies of insurance or bond or obligation of the nature
of indemnity for loss, damage, or liability made or renewed by any person,
association, company, or corporation transacting the business of accident,
fidelity, employer’s liability, plate glass, steam boiler, burglar, elevator,
automatic sprinkle, or other branch of insurance (except life, marine,
inland, and fire insurance) xxxx (Emphasis supplied)
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was
enacted revising and consolidating the laws relating to internal revenue. The
aforecited pertinent portion of Section 116, Article XI of Act No. 1189 was
completely reproduced as Section 30 (l), Article III of Act No. 2339. The very
detailed and exclusive enumeration of items subject to DST was thus
retained.
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again
reproduced as Section 1604 (l), Article IV of Act No. 2657 (Administrative
Code). Upon its amendment on March 10, 1917, the pertinent DST provision
became Section 1449 (l) of Act No. 2711, otherwise known as the
Administrative Code of 1917.
Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466
(the NIRC of 1939), which codified all the internal revenue laws of the
Philippines. In an amendment introduced by RA 40 on October 1, 1946, the
DST rate was increased but the provision remained substantially the same.
Thereafter, on June 3, 1977, the same provision with the same DST rate was
reproduced in PD 1158 (NIRC of 1977) as Section 234. Under PDs 1457 and
1959, enacted on June 11, 1978 and October 10, 1984 respectively, the DST
rate was again increased.1avvphi1
Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of
the NIRC of 1977 was renumbered as Section 198. And under Section 23 of
EO47 273 dated July 25, 1987, it was again renumbered and became Section
185.
On December 23, 1993, under RA 7660, Section 185 was amended but,
again, only with respect to the rate of tax.
Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA
8424 (or the NIRC of 1997), the subject legal provision was retained as the
present Section 185. In 2004, amendments to the DST provisions were
introduced by RA 924348 but Section 185 was untouched.
On the other hand, the concept of an HMO was introduced in the
Philippines with the formation of Bancom Health Care Corporation in 1974.
The same pioneer HMO was later reorganized and renamed Integrated
Health Care Services, Inc. (or Intercare). However, there are those who
claim that Health Maintenance, Inc. is the HMO industry pioneer, having set
foot in the Philippines as early as 1965 and having been formally
incorporated in 1991. Afterwards, HMOs proliferated quickly and currently,
there are 36 registered HMOs with a total enrollment of more than 2
million.49
We can clearly see from these two histories (of the DST on the one hand
and HMOs on the other) that when the law imposing the DST was first
passed, HMOs were yet unknown in the Philippines. However, when the
various amendments to the DST law were enacted, they were already in
existence in the Philippines and the term had in fact already been defined
by RA 7875. If it had been the intent of the legislature to impose DST on
health care agreements, it could have done so in clear and categorical
terms. It had many opportunities to do so. But it did not. The fact that the
NIRC contained no specific provision on the DST liability of health care
agreements of HMOs at a time they were already known as such, belies any
legislative intent to impose it on them. As a matter of fact, petitioner was
assessed its DST liability only on January 27, 2000, after more than a
decade in the business as an HMO.50
Considering that Section 185 did not change since 1904 (except for the rate
of tax), it would be safe to say that health care agreements were never, at
any time, recognized as insurance contracts or deemed engaged in the
business of insurance within the context of the provision.
The Power To Tax Is Not The Power To Destroy
As a general rule, the power to tax is an incident of sovereignty and is
unlimited in its range, acknowledging in its very nature no limits, so that
security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency who is to pay it.51 So
potent indeed is the power that it was once opined that "the power to tax
involves the power to destroy."52
Petitioner claims that the assessed DST to date which amounts to P376
million53 is way beyond its net worth of P259 million.54 Respondent never
disputed these assertions. Given the realities on the ground, imposing the
DST on petitioner would be highly oppressive. It is not the purpose of the
government to throttle private business. On the contrary, the government
ought to encourage private enterprise.55 Petitioner, just like any concern
organized for a lawful economic activity, has a right to maintain a legitimate
business.56 As aptly held in Roxas, et al. v. CTA, et al.:57
The power of taxation is sometimes called also the power to destroy.
Therefore it should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the "hen that lays the golden egg."58
Legitimate enterprises enjoy the constitutional protection not to be taxed
out of existence. Incurring losses because of a tax imposition may be an
acceptable consequence but killing the business of an entity is another
matter and should not be allowed. It is counter-productive and ultimately
subversive of the nation’s thrust towards a better economy which will
ultimately benefit the majority of our people.59
Petitioner’s Tax Liability Was Extinguished Under The Provisions Of RA
9840
Petitioner asserts that, regardless of the arguments, the DST assessment for
taxable years 1996 and 1997 became moot and academic60 when it availed
of the tax amnesty under RA 9480 on December 10, 2007. It
paid P5,127,149.08 representing 5% of its net worth as of the year ended
December 31, 2005 and complied with all requirements of the tax amnesty.
Under Section 6(a) of RA 9480, it is entitled to immunity from payment of
taxes as well as additions thereto, and the appurtenant civil, criminal or
administrative penalties under the 1997 NIRC, as amended, arising from the
failure to pay any and all internal revenue taxes for taxable year 2005 and
prior years.61
Far from disagreeing with petitioner, respondent manifested in its
memorandum:
Section 6 of [RA 9840] provides that availment of tax amnesty entitles a
taxpayer to immunity from payment of the tax involved, including the civil,
criminal, or administrative penalties provided under the 1997 [NIRC], for tax
liabilities arising in 2005 and the preceding years.
In view of petitioner’s availment of the benefits of [RA 9840], and without
conceding the merits of this case as discussed above, respondent concedes
that such tax amnesty extinguishes the tax liabilities of petitioner. This
admission, however, is not meant to preclude a revocation of the amnesty
granted in case it is found to have been granted under circumstances
amounting to tax fraud under Section 10 of said amnesty law.62(Emphasis
supplied)
Furthermore, we held in a recent case that DST is one of the taxes covered
by the tax amnesty program under RA 9480.63 There is no other conclusion
to draw than that petitioner’s liability for DST for the taxable years 1996 and
1997 was totally extinguished by its availment of the tax amnesty under RA
9480.
Is The Court Bound By A Minute Resolution In Another Case?
Petitioner raises another interesting issue in its motion for reconsideration:
whether this Court is bound by the ruling of the CA64 in CIR v. Philippine
National Bank65 that a health care agreement of Philamcare Health Systems
is not an insurance contract for purposes of the DST.
In support of its argument, petitioner cites the August 29, 2001 minute
resolution of this Court dismissing the appeal in Philippine National
Bank (G.R. No. 148680).66 Petitioner argues that the dismissal of G.R. No.
148680 by minute resolution was a judgment on the merits; hence, the
Court should apply the CA ruling there that a health care agreement is not
an insurance contract.
It is true that, although contained in a minute resolution, our dismissal of
the petition was a disposition of the merits of the case. When we dismissed
the petition, we effectively affirmed the CA ruling being questioned. As a
result, our ruling in that case has already become final.67 When a minute
resolution denies or dismisses a petition for failure to comply with formal
and substantive requirements, the challenged decision, together with its
findings of fact and legal conclusions, are deemed sustained.68 But what is
its effect on other cases?
With respect to the same subject matter and the same issues concerning
the same parties, it constitutes res judicata.69 However, if other parties or
another subject matter (even with the same parties and issues) is involved,
the minute resolution is not binding precedent. Thus, in CIR v. Baier-
Nickel,70 the Court noted that a previous case, CIR v. Baier-Nickel71 involving
the same parties and the same issues, was previously disposed of by the
Court thru a minute resolution dated February 17, 2003 sustaining the
ruling of the CA. Nonetheless, the Court ruled that the previous case "ha(d)
no bearing" on the latter case because the two cases involved different
subject matters as they were concerned with the taxable income of
different taxable years.72
Besides, there are substantial, not simply formal, distinctions between a
minute resolution and a decision. The constitutional requirement under the
first paragraph of Section 14, Article VIII of the Constitution that the facts
and the law on which the judgment is based must be expressed clearly and
distinctly applies only to decisions, not to minute resolutions. A minute
resolution is signed only by the clerk of court by authority of the justices,
unlike a decision. It does not require the certification of the Chief Justice.
Moreover, unlike decisions, minute resolutions are not published in the
Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks
of a decision.73 Indeed, as a rule, this Court lays down doctrines or principles
of law which constitute binding precedent in a decision duly signed by the
members of the Court and certified by the Chief Justice.
Accordingly, since petitioner was not a party in G.R. No. 148680 and since
petitioner’s liability for DST on its health care agreement was not the
subject matter of G.R. No. 148680, petitioner cannot successfully invoke the
minute resolution in that case (which is not even binding precedent) in its
favor. Nonetheless, in view of the reasons already discussed, this does not
detract in any way from the fact that petitioner’s health care agreements
are not subject to DST.
services), including the ability to control costs. They protect their members
from exposure to the high cost of hospitalization and other medical
expenses brought about by a fluctuating economy. Accordingly, they play an
important role in society as partners of the State in achieving its
constitutional mandate of providing its citizens with affordable health
services.
The rate of DST under Section 185 is equivalent to 12.5% of the premium
charged.74 Its imposition will elevate the cost of health care services. This
will in turn necessitate an increase in the membership fees, resulting in
either placing health services beyond the reach of the ordinary wage earner
or driving the industry to the ground. At the end of the day, neither side
wins, considering the indispensability of the services offered by HMOs.
WHEREFORE, the motion for reconsideration is GRANTED. The August 16,
2004 decision of the Court of Appeals in CA-G.R. SP
No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997 deficiency DST
assessment against petitioner is hereby CANCELLED and SET
ASIDE. Respondent is ordered to desist from collecting the said tax.
No costs.
SO ORDERED.

A Final Note

Taking into account that health care agreements are clearly not within the
ambit of Section 185 of the NIRC and there was never any legislative intent
to impose the same on HMOs like petitioner, the same should not be
arbitrarily and unjustly included in its coverage.

It is a matter of common knowledge that there is a great social need for

adequate medical services at a cost which the average wage earner can
afford. HMOs arrange, organize and manage health care treatment in the
furtherance of the goal of providing a more efficient and inexpensive health
care system made possible by quantity purchasing of services and
economies of scale. They offer advantages over the pay-for-service system
(wherein individuals are charged a fee each time they receive medical
Republic of the Philippines Any Lot Purchaser of the Assured who is at least 18 but not more
SUPREME COURT than 65 years of age, is indebted to the Assured for the unpaid
Baguio City balance of his loan with the Assured, and is accepted for Life
Insurance coverage by the Company on its effective date is eligible
SECOND DIVISION for insurance under the Policy.

G.R. No. 166245 April 9, 2008 EVIDENCE OF INSURABILITY.

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner, No medical examination shall be required for amounts of insurance
vs. up to P50,000.00. However, a declaration of good health shall be
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent. required for all Lot Purchasers as part of the application. The
Company reserves the right to require further evidence of
DECISION insurability satisfactory to the Company in respect of the following:

VELASCO, JR., J.: 1. Any amount of insurance in excess of P50,000.00.

The Case 2. Any lot purchaser who is more than 55 years of age.

Central to this Petition for Review on Certiorari under Rule 45 which seeks
to reverse and set aside the November 26, 2004 Decision1 of the Court of
Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the
insurer on the insurance application be considered as approval of the
application?
The Facts
On December 10, 1980, respondent Philippine American Life Insurance
Company (Philamlife) entered into an agreement denominated as Creditor
Group Life Policy No. P-19202 with petitioner Eternal Gardens Memorial
Park Corporation (Eternal). Under the policy, the clients of Eternal who
purchased burial lots from it on installment basis would be insured by
Philamlife. The amount of insurance coverage depended upon the existing
balance of the purchased burial lots. The policy was to be effective for a
period of one year, renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser at any time shall
be the amount of the unpaid balance of his loan (including arrears
up to but not exceeding 2 months) as reported by the Assured to
the Company or the sum of P100,000.00, whichever is smaller. Such
benefit shall be paid to the Assured if the Lot Purchaser dies while
insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the
date he contracts a loan with the Assured. However, there shall be
no insurance if the application of the Lot Purchaser is not approved
by the Company.3
Eternal was required under the policy to submit to Philamlife a list of all new
lot purchasers, together with a copy of the application of each purchaser,
and the amounts of the respective unpaid balances of all insured lot
purchasers. In relation to the instant petition, Eternal complied by
submitting a letter dated December 29, 1982,4containing a list of insurable
balances of its lot buyers for October 1982. One of those included in the list
as "new business" was a certain John Chuang. His balance of payments was
PhP 100,000. On August 2, 1984, Chuang died.
Eternal sent a letter dated August 20, 19845 to Philamlife, which served as
an insurance claim for Chuang’s death. Attached to the claim were the
following documents: (1) Chuang’s Certificate of Death; (2) Identification
Certificate stating that Chuang is a naturalized Filipino Citizen; (3) Certificate
of Claimant; (4) Certificate of Attending Physician; and (5) Assured’s
Certificate.
In reply, Philamlife wrote Eternal a letter on November 12, 1984,6 requiring
Eternal to submit the following documents relative to its insurance claim for
Chuang’s death: (1) Certificate of Claimant (with form attached); (2)
Assured’s Certificate (with form attached); (3) Application for Insurance
accomplished and signed by the insured, Chuang, while still living; and (4)
Statement of Account showing the unpaid balance of Chuang before his
death.
Eternal transmitted the required documents through a letter dated
November 14, 1984,7 which was received by Philamlife on November 15,
1984.
After more than a year, Philamlife had not furnished Eternal with any reply
to the latter’s insurance claim. This prompted Eternal to demand from
Philamlife the payment of the claim for PhP 100,000 on April 25, 1986.8
In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim
in a letter dated May 20, 1986,9 a portion of which reads:
The deceased was 59 years old when he entered into Contract
#9558 and 9529 with Eternal Gardens Memorial Park in October
1982 for the total maximum insurable amount of P100,000.00 each.
No application for Group Insurance was submitted in our office
prior to his death on August 2, 1984.
In accordance with our Creditor’s Group Life Policy No. P-1920,
under Evidence of Insurability provision, "a declaration of good
health shall be required for all Lot Purchasers as party of the
application." We cite further the provision on Effective Date of
Coverage under the policy which states that "there shall be no
insurance if the application is not approved by the Company." Since
no application had been submitted by the Insured/Assured, prior to
his death, for our approval but was submitted instead on November
15, 1984, after his death, Mr. John Uy Chuang was not covered
under the Policy. We wish to point out that Eternal Gardens being
the Assured was a party to the Contract and was therefore aware of
these pertinent provisions.
With regard to our acceptance of premiums, these do not connote
our approval per se of the insurance coverage but are held by us in
trust for the payor until the prerequisites for insurance coverage
shall have been met. We will however, return all the premiums
which have been paid in behalf of John Uy Chuang.
Consequently, Eternal filed a case before the Makati City Regional Trial
Court (RTC) for a sum of money against Philamlife, docketed as Civil Case
No. 14736. The trial court decided in favor of Eternal, the dispositive portion
of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of Plaintiff ETERNAL, against Defendant PHILAMLIFE, ordering
the Defendant PHILAMLIFE, to pay the sum of P100,000.00,
representing the proceeds of the Policy of John Uy Chuang, plus
legal rate of interest, until fully paid; and, to pay the sum of
P10,000.00 as attorney’s fees.
SO ORDERED.
The RTC found that Eternal submitted Chuang’s application for insurance
which he accomplished before his death, as testified to by Eternal’s witness
and evidenced by the letter dated December 29, 1982, stating, among
others: "Encl: Phil-Am Life Insurance Application Forms & Cert."10 It further
ruled that due to Philamlife’s inaction from the submission of the
requirements of the group insurance on December 29, 1982 to Chuang’s
death on August 2, 1984, as well as Philamlife’s acceptance of the premiums
during the same period, Philamlife was deemed to have approved Chuang’s
application. The RTC said that since the contract is a group life insurance,
once proof of death is submitted, payment must follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of Makati in
Civil Case No. 57810 is REVERSED and SET ASIDE, and the complaint
is DISMISSED. No costs.
SO ORDERED.11
The CA based its Decision on the factual finding that Chuang’s application
was not enclosed in Eternal’s letter dated December 29, 1982. It further
ruled that the non-accomplishment of the submitted application form
violated Section 26 of the Insurance Code. Thus, the CA concluded, there
being no application form, Chuang was not covered by Philamlife’s
insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of
substance, not therefore determined by this Honorable Court, or
has decided it in a way not in accord with law or with the applicable
jurisprudence, in holding that:
I. The application for insurance was not duly submitted to
respondent PhilamLife before the death of John Chuang;
II. There was no valid insurance coverage; and
III. Reversing and setting aside the Decision of the Regional
Trial Court dated May 29, 1996.
The Court’s Ruling
As a general rule, this Court is not a trier of facts and will not re-examine
factual issues raised before the CA and first level courts, considering their
findings of facts are conclusive and binding on this Court. However, such
rule is subject to exceptions, as enunciated in Sampayan v. Court of Appeals:
(1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of facts are conflicting; (6) when in
making its findings the [CA] went beyond the issues of the case, or
its findings are contrary to the admissions of both the appellant and
the appellee; (7) when the findings [of the CA] are contrary to the
trial court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set
forth in the petition as well as in the petitioner’s main and reply
briefs are not disputed by the respondent; (10) when the findings of
fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed
by the parties, which, if properly considered, would justify a
different conclusion.12 (Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by the CA;
thus, this Court may review them.
Eternal claims that the evidence that it presented before the trial court
supports its contention that it submitted a copy of the insurance application
of Chuang before his death. In Eternal’s letter dated December 29, 1982, a
list of insurable interests of buyers for October 1982 was attached, including
Chuang in the list of new businesses. Eternal added it was noted at the
bottom of said letter that the corresponding "Phil-Am Life Insurance
Application Forms & Cert." were enclosed in the letter that was apparently
received by Philamlife on January 15, 1983. Finally, Eternal alleged that it
provided a copy of the insurance application which was signed by Chuang
himself and executed before his death.
On the other hand, Philamlife claims that the evidence presented by Eternal
is insufficient, arguing that Eternal must present evidence showing that
Philamlife received a copy of Chuang’s insurance application.
The evidence on record supports Eternal’s position.
The fact of the matter is, the letter dated December 29, 1982, which
Philamlife stamped as received, states that the insurance forms for the
attached list of burial lot buyers were attached to the letter. Such stamp of
receipt has the effect of acknowledging receipt of the letter together with
the attachments. Such receipt is an admission by Philamlife against its own
interest.13 The burden of evidence has shifted to Philamlife, which must
prove that the letter did not contain Chuang’s insurance application.
However, Philamlife failed to do so; thus, Philamlife is deemed to have
received Chuang’s insurance application.
To reiterate, it was Philamlife’s bounden duty to make sure that before a
transmittal letter is stamped as received, the contents of the letter are
correct and accounted for.
Philamlife’s allegation that Eternal’s witnesses ran out of credibility and
reliability due to inconsistencies is groundless. The trial court is in the best
position to determine the reliability and credibility of the witnesses,
because it has the opportunity to observe firsthand the witnesses’
demeanor, conduct, and attitude. Findings of the trial court on such matters
are binding and conclusive on the appellate court, unless some facts or
circumstances of weight and substance have been overlooked,
misapprehended, or misinterpreted,14 that, if considered, might affect the
result of the case.15
An examination of the testimonies of the witnesses mentioned by
Philamlife, however, reveals no overlooked facts of substance and value.
Philamlife primarily claims that Eternal did not even know where the
original insurance application of Chuang was, as shown by the testimony of
Edilberto Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is required in
case of new coverage?
[Mendoza:]
A It is [a] standard operating procedure for the new client to fill up
two copies of this form and the original of this is submitted to
Philamlife together with the monthly remittances and the second
copy is remained or retained with the marketing department of
Eternal Gardens.
Atty. Miranda:
We move to strike out the answer as it is not responsive as counsel
is merely asking for the location and does not [ask] for the number
of copy.
Atty. Arevalo:
Q Where is the original?
[Mendoza:]
A As far as I remember I do not know where the original but when I
submitted with that payment together with the new clients all the
originals I see to it before I sign the transmittal letter the originals
are attached therein.16
In other words, the witness admitted not knowing where the original
insurance application was, but believed that the application was transmitted
to Philamlife as an attachment to a transmittal letter.
As to the seeming inconsistencies between the testimony of Manuel Cortez
on whether one or two insurance application forms were accomplished and
the testimony of Mendoza on who actually filled out the application form,
these are minor inconsistencies that do not affect the credibility of the
witnesses. Thus, we ruled in People v. Paredes that minor inconsistencies
are too trivial to affect the credibility of witnesses, and these may even
serve to strengthen their credibility as these negate any suspicion that the
testimonies have been rehearsed.17
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the essential
integrity of the prosecution’s evidence as a whole or reflect on the
witnesses’ honesty. The test is whether the testimonies agree on
essential facts and whether the respective versions corroborate and
substantially coincide with each other so as to make a consistent
and coherent whole.18
In the present case, the number of copies of the insurance application that
Chuang executed is not at issue, neither is whether the insurance
application presented by Eternal has been falsified. Thus, the
inconsistencies pointed out by Philamlife are minor and do not affect the
credibility of Eternal’s witnesses.
However, the question arises as to whether Philamlife assumed the risk of
loss without approving the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an agreement
denominated as Creditor Group Life Policy No. P-1920 dated December 10,
1980. In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the
date he contracts a loan with the Assured. However, there shall be
no insurance if the application of the Lot Purchaser is not approved
by the Company.
An examination of the above provision would show ambiguity between its
two sentences. The first sentence appears to state that the insurance
coverage of the clients of Eternal already became effective upon contracting
a loan with Eternal while the second sentence appears to require Philamlife
to approve the insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion
which must be construed liberally in favor of the insured and strictly against
the insurer in order to safeguard the latter’s interest. Thus, in Malayan
Insurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in
accordance with the general rule of resolving any ambiguity therein
in favor of the insured, where the contract or policy is prepared by
the insurer. A contract of insurance, being a contract of adhesion,
par excellence, any ambiguity therein should be resolved against
the insurer; in other words, it should be construed liberally in favor
of the insured and strictly against the insurer. Limitations of liability
should be regarded with extreme jealousy and must be construed in
such a way as to preclude the insurer from noncompliance with its
obligations.19 (Emphasis supplied.)
In the more recent case of Philamcare Health Systems, Inc. v. Court of
Appeals, we reiterated the above ruling, stating that:
When the terms of insurance contract contain limitations on
liability, courts should construe them in such a way as to preclude
the insurer from non-compliance with his obligation. Being a
contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract, the
insurer. By reason of the exclusive control of the insurance company
over the terms and phraseology of the insurance contract,
ambiguity must be strictly interpreted against the insurer and
liberally in favor of the insured, especially to avoid forfeiture.20
Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-
1920 dated December 10, 1980, must be construed in favor of the insured
and in favor of the effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions must be harmonized
to mean that upon a party’s purchase of a memorial lot on installment from
Eternal, an insurance contract covering the lot purchaser is created and the
same is effective, valid, and binding until terminated by Philamlife by
disapproving the insurance application. The second sentence of Creditor
Group Life Policy No. P-1920 on the Effective Date of Benefit is in the nature
of a resolutory condition which would lead to the cessation of the insurance
contract. Moreover, the mere inaction of the insurer on the insurance
application must not work to prejudice the insured; it cannot be interpreted
as a termination of the insurance contract. The termination of the insurance
contract by the insurer must be explicit and unambiguous.
As a final note, to characterize the insurer and the insured as contracting
parties on equal footing is inaccurate at best. Insurance contracts are wholly
prepared by the insurer with vast amounts of experience in the industry
purposefully used to its advantage. More often than not, insurance
contracts are contracts of adhesion containing technical terms and
conditions of the industry, confusing if at all understandable to laypersons,
that are imposed on those who wish to avail of insurance. As such, Republic of the Philippines
insurance contracts are imbued with public interest that must be considered SUPREME COURT
whenever the rights and obligations of the insurer and the insured are to be Manila
delineated. Hence, in order to protect the interest of insurance applicants,
insurance companies must be obligated to act with haste upon insurance THIRD DIVISION
applications, to either deny or approve the same, or otherwise be bound to
honor the application as a valid, binding, and effective insurance contract.21 G.R. No. 91666 July 20, 1990

WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision WESTERN GUARANTY CORPORATION, petitioner,
in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE. The May 29, 1996 vs.
Decision of the Makati City RTC, Branch 138 is MODIFIED. Philamlife is HONORABLE COURT OF APPEALS, PRISCILLA E. RODRIGUEZ, and DE DIOS
hereby ORDERED: TRANSPORTATION CO., INC., respondents.

(1) To pay Eternal the amount of PhP 100,000 representing the Narciso E. Ramirez for petitioner.
proceeds of the Life Insurance Policy of Chuang;
Alejandro Z. Barin and Carlos C. Fernando for private respondent.
(2) To pay Eternal legal interest at the rate of six percent (6%) per
annum of PhP 100,000 from the time of extra-judicial demand by
Eternal until Philamlife’s receipt of the May 29, 1996 RTC Decision
on June 17, 1996; FELICIANO, J.:

(3) To pay Eternal legal interest at the rate of twelve percent (12%)
per annum of PhP 100,000 from June 17, 1996 until full payment of
this award; and
(4) To pay Eternal attorney’s fees in the amount of PhP 10,000.
No costs.
SO ORDERED.
At around 4:30 in the afternoon of 27 March 1982, while crossing Airport
Road on a pedestrian lane on her way to work, respondent Priscilla E.
Rodriguez was struck by a De Dios passenger bus owned by respondent De
Dios Transportation Co., Inc., then driven by one Walter Saga y Aspero The
bus driver disregarded the stop signal given by a traffic policeman to allow
pedestrians to cross the road. Priscilla was thrown to the ground, hitting her
forehead. She was treated at the Protacio Emergency Hospital and later on
hospitalized at the San Juan De Dios Hospital. Her face was permanently
disfigured, causing her serious anxiety and moral distress. Respondent bus
company was insured with petitioner Western Guaranty Corporation
("Western") under its Master Policy which provided, among other things, for
protection against third party liability, the relevant section reading as
follows:

Section 1. Liability to the Public — Company will, subject to

the Limits of Liability, pay all sums necessary to discharge
liability of the insured in respect of —
 (a) death of or bodily injury to or damage to property of any
passenger as defined herein.
(b) death of or bodily injury or damage to property of any
THIRD PARTY as defined herein in any accident caused by or
arising out of the use of the Schedule Vehicle, provided that
the liability shall have first been determined. In no case,
however, shall the Company's total payment under both
Section I and Section 11 combined exceed the Limits of
Liability set forth herein. With respect to death of or bodily
injury to any third party or passenger, the company's
payment per victim in any one accident shall not exceed the
limits indicated in the Schedule of indemnities provided for
in this policy excluding the cost of additional medicines, and
such other burial and funeral expenses that might have
been incurred. (Emphasis supplied)
Respondent Priscilla Rodriguez filed a complaint for damages before the
Regional Trial Court of Makati against De Dios Transportation Co. and
Walter A. Saga Respondent De Dios Transportation Co., in turn, filed a third-
party complaint against its insurance carrier, petitioner Western. On 6
August 1985, the trial court rendered a decision in favor of respondent
Priscilla E. Rodriguez, the dispositive portion of which read:
WHEREFORE, judgment is hereby rendered in favor of
plaintiff and against the defendants, ordering the latter to
pay the former, jointly and severally, and for the third-party
defendant to pay to the plaintiff, by way of contribution,
indemnity or subrogation whatever amount may be left
unpaid by the defendant De Dios Transportation Company,
Inc. to the extent of not more than P50,000.00, as follows:
a) The sum of P2,776.00 as actual damages representing
doctor's fees, hospitalization and medicines;
b) the sum of P1,500.00 by way of compensation for loss of
earning during plaintiffs incapacity to work;
c) the sum of P10,000.00 as and by way of moral damages ;
d) the sum of P10,000.00 as and by way of attorney's fees
;and
e) the cost of suit.
On appeal, the Court of Appeals affirmed in toto the decision of the trial
court. Petitioner moved for the reconsideration of the appellate court's
decision. In a Resolution dated 10 January 1990, the Court of Appeals
denied the motion for reconsideration petition for lack of merit.
Petitioner Western is now before us on a Petition for Review alleging that
the Court of Appeals erred in holding petitioner liable to pay beyond the
limits set forth in the Schedule of Indemnities and in finding Western liable
for loss of earnings, moral damages and attorney's fees. Succinctly stated, it
is petitioner Western's position that it cannot be held liable for loss of
earnings, moral damages and attorney's fees because these items are not
among those included in the Schedule of Indemnities set forth in the
insurance policy.
Deliberating on the instant Petition for Review, we consider that petitioner
Western has failed to show any reversible error on the part of the Court of
Appeals in rendering its Decision dated 26 April 1989 and its Resolution
dated 10 January 1990.
An examination of Section 1 entitled "Liability to the Public", quoted above,
of the Master Policy issued by petitioner Western shows that that Section
defines the scope of the liability of insurer Western as well as the events
which generate such liability. The scope of liability of Western is marked out
in comprehensive terms: "all sums necessary to discharge liability of the
insured in respect of [the precipitating events]—" The precipitating events
which generate liability on the part of the insurer, either in favor of a
passenger or a third party, are specified in the following terms: (1) death of,
or (2) bodily injury to, or (3) damage to property of, the passenger or the
third party. Where no death, no bodily injury and no damage to property
resulted from the casualty ("any accident caused by or arising out of the use
of the Schedule Vehicle"), no liability is created so far as concerns the
insurer, petitioner Western.
The "Schedule of Indemnities for Death and/or Bodily Injury" attached to bedridden 6,000.00
the Master Policy, which petitioner Western invokes, needs to be quoted in
full: Any other injury
causing
Schedule of Indemnities for Death and/or Bodily Injury: permanent

The following schedule of indemnities should be observed in the settlement total 6,000.00
of claims for death, bodily injuries of, professional fees and hospital charges, disablement
for services rendered to traffic accident victims under CMVLI coverage:
Loss of arm or 4,200.00
above elbow
DEATH P12,000.00
INDEMNITY Loss of arm 3,000.00
between elbow
PERMANENT and wrist
DISABLEMENT
— Loss of hand P2,550.00

DESCRIPTION OF Amount Loss of four 2,550.00

DISABLEMENT fingers and
thumb of one
Loss of two P6,000.00 hand
limbs
Loss of four 2,100.00
Loss of both fingers
hands, or all
fingers and Loss of leg at or 3,600.00
above knee
both thumbs 6,000.00
Loss of leg below 2,400.00
Loss of both feet 6,000.00 knee

Loss of one hand 6,000.00 Loss of one foot 2,400.00

and one foot
Loss of toes-all 900.00
Loss of sight of 6,000.00 of one foot
both eyes
Loss of thumb 900.00
Injuries resulting
in being Loss of index 600.00
permanently finger
 Loss of sight of 1,800.00 Minor
one eye Operation
50.00
Loss of hearing 3,000.00
both ears OPERATING Major
Operation
Loss of hearing- 450.00
one ear ROOM Medium
Operation
Total of Accommodation of Professional Attendance Minor
Operation
Extended Services Fees or
Rendered Charges MEDICAL For daily
visits of
HOSPITAL ROOM Maximum P
of 45 36.00/day EXPENSES Practitioner
days/year- or

Laboratory Specialist
fees, drugs
Total amount
x-rays, etc. of medical
300.0 0
expenses
SURGICAL Major 1,000.00 must not
Operation exceed

EXPENSES Medium 500.00 (for single

Operation period of

Minor 100.00 confinement) 400.00 1

Operation
It will be seen that the above quoted Schedule of Indemnities establishes
ANAESTHESIOLOGIST Major monetary limits which Western may invoke in case of occurrence of the
Operation particular kinds of physical injury there listed, e.g.:
300.00

LOGISTS' FEES Medium loss of P6,000.00;

Operation both
150.00 feet
 loss of P2,400.00; a closed enumeration, of the specific kinds of damages which may be
one awarded under the Master Policy Western has issued. Accordingly, we agree
foot with the Court of Appeals that:

loss of P1,800.00; ... we cannot agree with the movant that the schedule was
sight of meant to be an exclusive enumeration of the nature of the
one damages for which it would be liable under its policy. As we
eye see it, the schedule was merely meant to set limits to the
amounts the movant would be liable for in cases of claims
for death, bodily injuries of, professional services and
It must be stressed, however, that the Schedule of Indemnities
hospital charges, for services rendered to traffic accident
does not purport to limit, or to enumerate exhaustively, the species of
victims,' and not necessarily exclude claims against the
bodily injury occurrence of which generate liability for petitioner Western. A
insurance policy for other kinds of damages, such as those
car accident may, for instance, result in injury to internal organs of a
in question.
passenger or third party, without any accompanying amputation or loss of
an external member (e.g., a foot or an arm or an eye). But such internal
Secondly, the reading urged by Western of the Schedule of Indemnities
injuries are surely covered by Section I of the Master Policy, since they
comes too close to working fraud upon both the insured and the third party
certainly constitute bodily injuries.
beneficiary of Section 1, quoted above. For Western's reading would
drastically and without warning limit the otherwise unlimited (save for the
Petitioner Western in effect contends before this Court, as it did before the
over-all quantitative limit of liability of P50,000.00 per person per accident)
Court of Appeals, that because the Schedule of Indemnities limits the
and comprehensive scope of liability assumed by the insurer Western under
amount payable for certain kinds of expenses —"hospital room", "surgical
Section 1: "all sums necessary to discharge liability of the insured in respect
expenses", "anaesthesiologists' fee", "operating room" and "medical
of [bodily injury to a third party]". This result- which is not essentially
expenses" that Schedule should be read as excluding liability for any other
different from taking away with the left hand what had been given with the
type of expense or damage or loss even though actually sustained or
right hand we must avoid as obviously repugnant to public policy. If what
incurred by the third party victim. We are not persuaded by Western's
Western now urges is what Western intended to achieve by its Schedule of
contention.
Indemnities, it was incumbent upon Western to use language far more
specific and precise than that used in fact by Western, so that the insured,
Firstly, the Schedule of Indemnities does not purport to restrict the kinds of and potential purchasers of its Master Policy, and the Office of the
damages that may be awarded against Western once liability has arisen. Insurance Commissioner, may be properly informed and act accordingly.
Section 1, quoted above, does refer to certain "Limits of Liability" which in
the case of the third party liability section of the Master Policy, is apparently
Petitioner Western would have us construe the Schedule of Indemnities as
P50,000.00 per person per accident. Within this over-all quantitative limit,
comprising contractual limitations of liability which, as already noted, is
all kinds of damages allowable by law" — actual or compensatory
comprehensively defined in Section 1 — Liability to the Public" — of the
damages"; "moral damages'; "nominal damages"; "temperate or moderate
Master Policy. It is wellsettled, however, that contractual limitations of
damages"; "liquidated damages"; and "exemplary damages" 2 — may be
liability found in insurance contracts should be regarded by courts with a
awarded by a competent court against the insurer once liability is shown to
jaundiced eye and extreme care and should be so construed as to preclude
have arisen, and the essential requisites or conditions for grant of each
the insurer from evading compliance with its just obligations. 3
species of damages are present. It appears to us self-evident that the
Schedule of Indemnities was not intended to be an enumeration, much less
Finally, an insurance contract is a contract of adhesion. The rule is well
entrenched in our jurisprudence that the terms of such contract are to be
construed strictly against the party which prepared the contract, which in
this case happens to be petitioner Western. 4

ACCORDINGLY, the Court Resolved to DENY the Petition for Review for lack
of merit Costs against petitioner.